Operational Due Diligence Research:
Benefits and Benchmarks
After an operational due diligence review of a fund is completed, investors are left with a series
of operational risk data points. This operational risk data is certainly useful for the purposes of
making a determination of the operational riskiness of a particular fund. This data however, also
has other uses which can benefit investors in performing future operational due diligence
Collecting a continuing series of data points about fund manager operational practices can lead
investors to develop a greater degree of internal competency about fund operations. This is only
intuitive – the more you do something the more education and better at it you generally become.
This same line of thinking can be paralleled in operational due diligence. It is in this way, that
investors can improve upon their operational due diligence review by collecting and analyzing
operational due diligence information to study fund operational trends.
Corgentum Consulting conducts such operational due diligence research across all fund
managers it reviews. Our firm was recently featured in a PE Manager article discussing their
research into Private Equity firms. The piece was titled, “Full Suite Systems Becoming Industry
Norm,” written by Nicholas Donato. The article covers a range of statistics obtained exclusively
from Corgentum’s operational risk database. Analysis of this data produced the observation that
larger General Partners (“GPs”) at private equity firms are transitioning to full-suite operational
systems as opposed to midsized systems.
By leveraging off of operational risk data, investors can develop a sanity check to obtain a better
understanding of how a fund’s operational practices actually compare to its peers. Such
comparisons can be made across certain fund strategies, geographically or antagonistically across
multiple fund types.
For example, one of the important things to be looked at during an operational due diligence
review is technology and systems. If a fund manager claims that a certain system is widely used
throughout the industry analyzing operational due diligence information can provide a reality
check to help an investor better determine if this is actually the case.
Operational due diligence data analysis can also provide benefits beyond just benchmark
analysis. Such analysis can also provide insights into industry operational trends. In contrast to
exogenous industry trends, such as the shifting regulatory landscape, endogenous fund manager
operational practices may be more opaque. This is where studying operational due diligence data
can provide a window into trends in fund manager operational practices.
© 2012 Corgentum Consulting, LLC
Investors can benefit by incorporating not just qualitative analysis of fund operations but also
quantitative benchmark analysis as well. Such information can give investors a better
understanding if their fund managers are standing on more solid footing as an operational leader,
or simply following along with the rest of the group.
Originally posted on the Corgentum Consulting blog at: http://corgentum.com/blog/
For More Jason Scharfman, Managing Partner
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© 2012 Corgentum Consulting, LLC